5:53 pm

Wed January 8, 2014

As Temps Drop, Gas Prices Rise, Along With Demand For Fuel

Propane cylinders sit on the grounds of Blue Rhino, a propane gas company, in Tavares, Fla. In the Midwest, farmers needed more propane for crops that came in later than normal.

Gerardo MoraGetty Images

Cold weather this week has boosted demand for heating fuels across the country. Natural gas prices are up, especially in the Northeast. At one point prices for natural gas into New York City jumped nearly tenfold from an average winter price of $5.68 per million BTU to $55.49, according to Bentek Energy, an analytics company.

Part of the problem is getting the gas from where it's produced — these days, in places like Western Pennsylvania — to the population centers where it's burned. Sometimes there just aren't enough pipelines to meet the demand. In those cases utilities and other users start bidding up prices. Regulated utilities are willing to pay a lot to keep the gas flowing.

"You can't let Grandma freeze," says Anne Swedberg, a senior energy analyst for Bentek, repeating a phrase heard in the industry. "They [utilities] are required to continue to purchase gas to maintain their systems at whatever price, so that they can keep the lights on for Grandma and the heat on for Grandma," Swedberg says.

Analysts are still sorting out what happened when prices reached their peak. But Swedberg says in addition to pipeline constraints it appears a cold-weather phenomenon called "freeze-off" was a problem.

"Freeze-off is where the gas is not able to get out of the well — to enter the pipeline," Swedberg says.

In parts of the country where natural gas isn't available, propane is often used for heating. And this year it's been in short supply too. The National Propane Gas Association says there are a few reasons for this.

"This year we're actually having winter," says Jeff Petrash, vice president and general counsel for the association. The past few winters were warmer than normal but this year Petrash says demand for all heating fuels — oil, propane and natural gas — is significantly higher.

On top of that, farmers in the Midwest needed more propane for crops that came in later than normal.

"Most people don't realize that huge amounts of propane are used in grain-drying," Petrash says. "So we had a large and later-than-normal grain harvest that called for large volumes of propane just as we were entering the winter heating season."

Earlier this week Oklahoma Gov. Mary Fallin declared a state of emergency in response to the propane shortage in her state. She joined 18 other states in issuing executive orders. Normally propane truck drivers are restricted in how long they can work each day. But for the next week or two drivers will be exempted from those rules. And in Oklahoma out-of-state suppliers will have an easier time bringing fuel in to meet the increased demand.

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Transcript

ROBERT SIEGEL, HOST:

Furnaces all over the country are working harder this week, burning more fuel because of the cold snap. And that jump in demand is boosting fuel prices. The cost of natural gas especially is way up in the Northeast. In recent years, drillers have been producing more gas than the country can use. That changed when temperatures plunged, as NPR's Jeff Brady reports.

JEFF BRADY, BYLINE: Part of the problem is getting the gas from where it's produced, in places like Western Pennsylvania, to where it's used; population centers such as New York and Boston. Sometimes there just aren't enough pipelines to meet the demand. In those cases, utilities and other users start bidding up prices. At one point, prices for gas flowing into New York City jumped nearly tenfold over average winter prices.

Anne Swedberg, with the firm Bentek Energy, says utilities were willing to pay the steep prices for one important reason.

ANNE SWEDBERG: You can't let Grandma freeze and so they are required to continue to purchase gas to maintain their systems at whatever price, so that they can, you know, they can keep the lights on for Grandma and the heat on for Grandma.

BRADY: Swedberg says analysts are still sorting out what happened when prices reached their peak. In addition to pipeline constraints, she says it appears something called freeze-off was a problem.

SWEDBERG: The freeze-off is where the gas is not able to get out of the well to enter the pipeline. So they're actually freezing in the well or the pipeline.

BRADY: In parts of the country where natural gas isn't available, propane is often used for heating and this year it's been in short supply, too. Jeff Petrash is the vice president and general counsel for the National Propane Gas Association. He says there are a few reasons for the supply problems first of all...

JEFF PETRASH: This year we're actually having winter. In the last several years, winters have been warmer than normal. And therefore, the needs for all heating fuels - fuel oil, propane, natural gas, et cetera - have been significantly higher this year.

BRADY: Petrash says farmers in the Midwest also need a lot of propane and this year the crops came in later than normal.

PETRASH: Most people don't realize that huge amounts of propane are used in grain drying. So we had a large and later than normal grain harvest that called for large volumes of propane, just as we were entering the winter heating season.

BRADY: Earlier this week, Oklahoma Governor Mary Fallin joined 18 other states in issuing executive orders to address the propane supply issue. Normally propane truck drivers are restricted in how long they can work each day. But for the next week or two, drivers will be exempted from those rules. And in Oklahoma, out-of-state suppliers will have an easier time bringing fuel in to meet the increased demand.